Texaco Inc. v. Dagher

PETITIONER: Texaco Inc.
RESPONDENT: Fouad N. Dagher et al.
LOCATION: U.S. Court of Appeals for the Ninth Circuit

DOCKET NO.: 04-805
DECIDED BY: Roberts Court (2006-2009)
LOWER COURT: United States Court of Appeals for the Ninth Circuit

CITATION: 547 US 1 (2006)
GRANTED: Jun 27, 2005
ARGUED: Jan 10, 2006
DECIDED: Feb 28, 2006

ADVOCATES:
Glen D. Nager - argued the cause for Petitioners
Joseph Michaelangelo Alioto - argued the cause for Respondents
Jeffrey P. Minear - argued the cause for Petitioners

Facts of the case

In 1998, Texaco and Shell Oil agreed to stop competing for the U.S. oil market. The two companies formed a joint venture, Equilon Enterprises, which would manage the refining and marketing of gasoline in the western United States. The joint venture was charged with setting prices for Texaco and Shell gasoline, which would be sold under the original brand names. When Equilon set the same price for both brands, Dagher and other service station owners sued under Section 1 of the Sherman Antitrust Act, alleging that Equilon was engaging in illegal price-fixing. The dispute turned on whether Equilon's actions fell under the Sherman Act's per se rule against price-fixing, under which all such instances of price-fixing by joint ventures would be illegal without regard to the specific harm caused in any particular case. The District Court granted summary judgment for Texaco, holding that the per se rule did not apply to the price-setting engaged in by Equilon. The District Judge reasoned that all enterprises, including joint ventures, must eventually set prices for their products. Therefore Equilon was merely engaged in a normal business practice, not the type of unreasonable, anticompetitive price-fixing that would run afoul of the Supreme Court's non-literal interpretation of the Sherman Act. The Ninth Circuit Court of Appeals reversed, ruling that Equilon's actions constituted price-fixing under the Sherman Act's per se rule and therefore could not be legal.

Question

Does Section 1 of the Sherman Act always prohibit a lawful joint venture from setting the prices at which its goods will be sold?

Media for Texaco Inc. v. Dagher

Audio Transcription for Oral Argument - January 10, 2006 in Texaco Inc. v. Dagher

Audio Transcription for Opinion Announcement - February 28, 2006 in Texaco Inc. v. Dagher

John G. Roberts, Jr.:

Justice Thomas has the opinion in 04-805, Texaco versus Dagher, and No. 04-814, Shell Oil versus Dagher.

Clarence Thomas:

These cases come to us on writs of certiorari to the United States Court of Appeals for the 9th Circuit.

Petitioners Texaco and Shell Oil collaborated in a joint venture called Equilon Enterprises, Inc. to refine and sell gasoline to the western United States and to do so under the original Texaco and Shell Oil brand names.

Respondents, a class of Texaco and Shell Oil service-station owners, alleged that petitioners engaged in unlawful price-fixing when Equilon set a single price for both Texaco and Shell Oil-brand gasoline.

The Court of Appeals held that this pricing practice was per se illegal under Section 1 of the Sherman Act.

In an opinion filed with the Clerk today, we reverse the judgment of the Court of Appeals.

It is not per se illegal under Section 1 of the Sherman Act for a lawful, economically integrated joint venture to set the prices at which it sells its products.

Under our precedents, per se liability is reserved for those agreements that are so plainly anticompetitive that no elaborate study of the industry is needed to establish their illegality.

Price-fixing agreements between two or more competitors, known as horizontal price-fixing agreements, fall into the category of arrangements that are per se unlawful.

We are not presented with such an agreement here, however, because Texaco and Shell Oil did not compete with one another in the relevant market.

Instead, they participated in that market jointly through their investment in Equilon.

Throughout Equilon’s existence, Texaco and Shell Oil shared in the profits of Equilon’s activities in their role as investors, not competitors.

The Court of Appeals erred when it imposed per se liability by invoking the ancillary restraints doctrine.

That doctrine governs the validity of restrictions imposed by illegitimate joint venture or non-venture activities.

Here, by contrast, the challenged business practice involves the core activity of the joint venture itself; that is, the pricing of the goods produced and sold by Equilon.

The decision of the Court is unanimous.

Justice Alito took no part in the consideration or decision of these cases.